The Two Johns on the Credit Crunch

This sketch about banking recorded has become a modern classic. The Guardian published a transcript of the sketch this week. Here it is:

John Fortune: George Parr, You are an investment banker.

John Bird:I am, yes.

JF: Could you explain the credit crunch?

JB: Certainly. Errrr … Brrrrrr … Well, yes, as I said, the banking structure is a very delicate machine, and it needs something to oil it with, like milk.

JF: You oil the machinery with milk?

JB: Yes, you know, you need something that you can pour into a cup and drink, or you can give it to somebody else to drink, or you can take it away and put two straws in it, you can share.

JF: Yes.

JB: And what happens, you see, is somebody suddenly says, out of the blue, I’m not going to take any of your milk because I might think it’s off. And then I’m not going to get any of your milk, and then all the milk is standing around and gets rancid and hardens, and then when you get hard milk what do you get?

JF: Cheese.

JB: No, no, no, no. It’s more like a jelly. It wobbles. And at this point the man in the street turns to his wife and says, ‘Irene,’ or whatever her name happens to be, ‘we can’t have that new house you wanted because all the milk has turned to jelly.’ I hope that’s clear.

JF: Yes. But isn’t the real cause of this crisis the fact that for years the banks have been lending huge amounts of money to people who can’t possibly pay it back?

JB: That’s very, very simplistic. A banker can’t possibly know the circumstances of each individual borrower. I mean, if somebody comes for a mortgage, unknown to the bank he might have his grandfather living with him. And again, unknown to the bank, his grand-father might be incontinent. And then the borrower has to spend large chunks of his income on new underpants, on colostomy bags, on recarpeting the lounge every few weeks. And you see we have to come up with systems and ways of allowing for that.

JF: And what systems have you come up with for that?

JB: Well, our boffins have thought up some very complex financial instruments. Do you know what a collateralised debt obligation is?

JF: No.

JB: (Pause.) Do you know what a structured investment vehicle is?

JF: No.

JB: That’s a pity, neither do I. Well, we have these things, these CDOs and SIVs and we put all the dodgy mortgages and the incontinent grandfathers in them. And then, hey presto, the credit rating agencies call them triple A.

JF: And what does that mean?

JB: It means almost zero probability of loss.

JF: And what happens next?

JB: What happens next was that the word almost came to haunt us rather and, well, it was ghastly, because at four o’clock my CDOs were triple A, and at ten past four they were all junk and they’d gone into EOD.

JF: EOD?

JB: Event Of Default. Which meant they were WBA.

JF: WBA?

JB: Worth Bugger All.

JF: So what are you going to do about it?

JB: Well, of course, the market and the City is very resilient, very innovative, very wise; it’s always found the big idea.

JF: And what is the big idea?

JB: The big idea this time was to all go and have breakfast with Gordon Brown and then to completely ignore anything he asked us to do. But at least we got a free breakfast.

JF: Yes, but I mean this is the worst crisis in finance that we’ve ever had. I mean a couple of weeks ago there was a rumour that the Halifax Bank of Scotland had run out of money.

JB: HBOS, yes.

JF: And that would bring the whole system down.

JB: Yes, but that rumour was found to be false.

JF: Really? Well I’ve heard a rumour that the rumour wasn’t false, the rumour was true.

JB: What?! Where did you hear that?

JF: Well there you are, you see. Don’t you realise the danger to the markets when they’re affected by this kind of speculation.

JB: Well, a very notable commentator on the markets has said recently that banks believe they would be less vulnerable to speculation if the Bank of England made good any holes in their finances.

JF: So what you’re saying is you can ask for any amount of public funds at any time you want.

JB: No, that would be ridiculous. No, we asked for the Bank of England to swap their real money for the CDOs and the things which have all the incontinent grandfathers in it.

JF: So if you make profits you keep them, and if you make losses we pay for them.

JB: That sounds good to me, yes. (Applause.)

JF: But you must realise that in turn for all this public money you’re going to have to accept much tighter regulations.

JB: Oh no, that’s out of the question. That would fly in the fact of the principle of free markets, which has been the basis of New Labour’s economic policy for the past 11 years.

JF: But you’re going to have to change, you have no choice.

JB: Well yes we do. People like me who earn millions of pounds a year, we can go abroad and work, we can go to the United States and work.

JF: But they have their own people ruining their financial system, They don’t need any more.

JB: Well all right, OK, if we are going to be regulated we’ll do it under one condition.

JF: Which is what?

JB: That the people doing the regulation are the Financial Services Authority.

JF: But they’re the people who completely failed in the case of Northern Rock.

JB: Exactly. And I am going to move my bank’s headquarters to the Shetland Islands.

JF: For what reason?

JB: Well, if the FSA weren’t prepared to go to Newcastle to check on Northern Rock, they are certainly not going to go up there, are they? (Applause.)

Share this:

Like this:

LikeLoading...

Related

This entry was posted on Saturday, October 25th, 2008 at 9:32 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.